Daily Form October 16, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY OCTOBER 16, 2007       06:39 ET

Yesterday’s downbeat session produced two key breakdowns on the sector charts that I like to monitor. Firstly the banking index (^BKX) dropped below the intersection of the 20 and 50 day EMA’s and closed with a 1.7% loss. Citigroup’s earnings contributed to the fall but more worryingly the new bailout fund, the inauspiciously named Master Liquidity Enhancement Conduit or M-LEC, received a lukewarm reaction from many traders.

The fact that the Treasury has warmly welcomed this initiative is double-edged as it suggests that there may have been no alternative but to encourage three of the largest US banks - that are too big to fail - to underwite the troubled asset backed paper market. If this market begins to come further unstuck for any reason there could be quite a lot more to worry about than the woes of sub-prime lenders.

The second break occured in the S&P Retail index (^RLX) which also dropped below the same moving averages as the banking sector.

In overnight trading the Hang Seng Index (^HSI) reversed again to close with a 2% loss after almost penetrating the 30,000 level intraday. This index has traced out a fifty percent trajectory from the mid August lows to today’s intraday high and, as the chart reveals, the index looks to be quite precariously balanced.

The recent action in Bombay and Hong Kong has echoes of the price action of the Nikkei in the late 1980’s but, as was true then, trying to pick the top in these moments of extraordinary euphoria can be quite hazardous to your wealth.


The patterns identified below should be considered as indicative of eventual price direction in forthcoming trading sessions. None of these setups should be seen as specifically opportune for the current trading session.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

LOW  Lowe"s Companies Inc.  

Lowe’s Companies (LOW) broke down yesterday from an unorthodox bear flag pullback pattern that I mentioned recently and it is probable that there is further downside to be explored as the stock may not find real support until the mid August low near $26 is tested.

LAMR  Lamar Advertising Company  

Lamar (LAMR) could be poised to break out of a bull flag formation.

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